Larry's 2016 U.S. Tax Guide 'Supplement' for U.S. Expats, Green Card Holders and Non-Resident Aliens in User Friendly English. Laurence E. 'Larry'
I have been told that it is hell to get back into the system?
Read the section about the Streamlined Foreign Procedures about alternative for filing the past three years tax returns and six years FinCEN114. This brand new alternative is made just for you…..but take advantage of it, if you can, before they end allowing for this!
The Form 1040-NR ‘Section’
Why I never included this short nonetheless important section previously, I have absolutely no idea. Perhaps because I am now doing more Form 1040-NRs than ever, it’s time to rectify that prior omission. Why the change, now? It’s not just for those who have expatriated but still have investments in the U.S. but I have met more non-U.S. persons with U.S. bank and brokerage accounts who are anticipating withholding tax over and above what their actual taxes are, so they now wish to report and get their refund!
On 1 December 2014, the Congressional Research Service issued a 9 page bulletin entitled “Federal Income Taxes and Noncitizens: Frequently Asked Questions”. Here it is, over a year later and sadly I have to state that not one question I assumed would be asked was asked. So you have an alternative, my friends, go to the 74 page set of instructions that accompany the five page Form 1040-NR http://www.irs.gov/pub/irs-pdf/i1040nr.pdf (finally published by the IRS on 14 January 2016) AND the form, itself (which, if this applies to you, you should look at) http://www.irs.gov/pub/irs-pdf/f1040nr.pdf …..or read on for my who, when, where, what, etc, etc, etc in much fewer words…..HOLD THE PRESSES: THERE IS NOW A 2 PAGE FORM 1040NR EZ AND A NEW, 34 PAGE SET OF INSTRUCTIONS FOR THIS FORM. IF YOU THINK YOU MIGHT BE ELIGIBLE FOR THIS FAR MORE SIMPLIFIED PROCEDURE, LOOK AT COLUMN ONE (AND NO MORE) OF THE ‘EZ’ FORM INSTRUCTIONS – YOU’LL KNOW, FAST ENOUGH!!!
•Something new regarding the ITIN – the ‘Social Security Number alternative’: Your ITIN will expire of you do not use it on a U.S. income tax return for any year during a period of 5 consecutive years. Once your ITIN expires, you must reapply using Form W-7 http://www.irs.gov/pub/irs-pdf/fw7.pdf regardless of when it was originally issued. The IRS will begin deactivating ITINs this year, 2016.
•Special rules for former U.S. citizens and former U.S. long-term residents: If you renounced your U.S. citizenship or terminated your long-term resident status (i.e. Green Card), you may be subject to different rules – look at page 9 of those 73 pages of instructions to verify whether or not you might be subject to these rules.
•If you either have a Green Card or meet the Substantial Presence Test, you will have to file Form 1040, not the 1040-NR.
•How the Substantial Presence Test is met: if you were physically present in the U.S. for at least
o31 days during 2015 and
o183 days during 2013, 2014 and 2015 using a chart with ‘multipliers on page 3 of the instructions – this can have a big impact upon your taxes, so you’d best take a look at this!
•Who must file:
oIf you are a non-resident alien engaged in trade or business in the U.S. during 2015, you must file Form 1040-NR regardless of whether or not you had trade or business or business-source income during 2015 or your income is exempt under tax treaty – no tax if no income but big penalties unless you tell this to the IRS!
oHere’s a good example regarding who must file – direct from the middle of page 5 of the 2015 instructions: Mary is a nonresident alien individual. The only U.S. source income she received during the year were 4 dividend payments and 12 interest payments. All payments were reported to Mary on Form(s) 1042-S. On one of the dividend payments the withholding agent incorrectly withheld at a rate of 30 percent instead of 15 percent. There were no other withholding discrepancies. Mary must report all four dividend payments. She is not required to report any of the interest payments (which are only taxable if in connection with a trade or business). Please note – Form 1042-S was greatly expanded for this year and is likely to be filed incorrectly, with the withholding agent withholding more than he or she (or it or they) should. This form, which you will receive, rather than prepare yourself, is 8 pages long with a 26 page set of instructions – at least 2014’s instructions for as of 4 February 2016, new, 2015 instructions have not yet been issued. Be prepared to ‘challenge’ the withholding – it’s not your fault that this is happening: the penalty payments for the entity preparing this form are as bad, if not worse than the penalties you’d get, so they (the form preparers) are only covering their rear-ends!
oPayments of gross proceeds from the sale of securities or regulated
futures contracts are generally exempt from U.S. tax law (unless part of that trade or business you might be involved with). If you received such payments and they were subjected to backup withholding, specify the type of payment on line 12 of Form 1040-NR and show that amount in column (d). Be prepared to list on line 12, dear readers, because there is far more likelihood of backup withholding because of fear of FATCA!
oDocumentation: You must attach acceptable proof of the withholding for which you are claiming a refund. If you are claiming a refund of backup withholding tax based on your status as a non-resident alien, you must attach a copy of the Form 1099 or Form 1042-S that shows both the income and the amount of backup withholding to the left corner of the Form 1040-NR you are filing.
oWhen do you file? If you get a W-2 with payroll tax deductions, be prepared to file by ‘tax day’, April 18th, this year. Otherwise, you get that 15 June filing deadline. Page 6 of the instructions tells you where to file.
oDual-Status taxpayers This applies basically to those of you who expatriated, for example, in September, 2015. Yet you had U.S. declarable and quite possibly taxable income throughout the entire calendar year. Then, guys, you are going to have to file two tax returns: the 1040 for the period you were a citizen and the 1040-NR for the time you were not a citizen. You’ve got to label both returns : The 1040 ‘Dual-Status Statement’ at the top; The 1040-NR ‘Dual Status Return’ across the top of this return. This is what the instructions (page 7) states. Why not say the same on both? Now that, I bet, would really be a frequently asked question!
oThe Form, itself….. Let me mention two specific areas worthy of your attention if you are going to be filing this form: firstly, take a look at page 4, Section NEC, tax not effectively connected with a trade or business. Here’s where your (hopefully) gains from U.S. based investments are going to be listed. If you have a business, though, you’d best start paying closer attention to the very beginning of the form, not just page 4! AND Page 5, sections G and H. This is where you have got to list your trips and time spent in the States over the three past years. Please don’t forget this aspect of being a non-resident alien – there are some weighty tax costs if you become resident!
•In summary……if you’ve never seen Form 1040-NR or Form 1040-NR EZ and discover that you are responsible for filing it, then be prepared to be both confused and annoyed while you are reading about your newfound tax obligations – that form and its instructions. They are (for lack of a better word) alien! Yes, you can do this return yourself…..but don’t hesitate to consult a tax professional if while reading you say to yourself: “It looks like English. It sounds like English. But I’ll be damned if I can figure out what it is trying to say!”
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